debt

Chapter 13 an option even after Chapter 7

Justin Harelikq_v2.gifDear Bankruptcy Adviser,
My husband and I filed for Chapter 7 bankruptcy back in January of 2004 right after we got married. We need to find out when we will be able to file again. The reason I want to file again is because my husband is unable to do any kind of manual labor and, well, I make $8.20 an hour and the bills just keep stacking up, the calls will not stop, and we have already been taken to court twice. I can't afford to pay our bills, keep a roof over our kids' heads, and pay off the doctor bills and the credit cards.
-- Amy

a_v2.gifDear Amy,
You have limited options at this point, but one option might still exist. You might be able to file for a Chapter 13 bankruptcy with a very low monthly payment.

Once you file for Chapter 7 bankruptcy and receive the official discharge of your debts, you cannot file another Chapter 7 bankruptcy case for eight years. The eight-year period begins when you file the first case, not when the case is discharged, normally four to six months after filing. A "Discharge of Debtor" order means you no longer are liable for paying those debts included in your bankruptcy paperwork.

Here's how to determine when you can file a second Chapter 7 bankruptcy. If you file on Jan. 1, 2002, then you can file another case on Jan. 2, 2010. In your situation, you cannot file Chapter 7 again until January or February 2012.

However, you are permitted to file a Chapter 13 bankruptcy anytime after filing Chapter 7. Chapter 13 is a repayment of none, some or all of your debt over three to five years. Most or all of your creditors are lumped together into one large pool. Then, you make payments each month to the lawyer assigned to your case, called a trustee. The trustee distributes your payment to the creditors.

When you file your case, you or your attorney and the trustee determine a reasonable amount that you can afford to pay back to your creditors. That amount is based on your assets, monthly income and monthly expenses.

Most other options don't appear available to you, like credit counseling or debt negotiation. You already have been sued, so the creditors with judgments against you will try to garnish wages or place a levy on a bank account rather than wait for monthly payments.

There are two important issues to know about filing Chapter 13 after filing Chapter 7. While you can file Chapter 13 on your own, there are a few specific nuances about this type of filing. Here are two important ones to consider:

  • If you file Chapter 13 within four years of filing Chapter 7, you cannot discharge your debts after you complete the three- to five-year Chapter 13 plan. You can still file the Chapter 13 to keep creditors from suing you, garnishing your paychecks or levying your bank account. This may require filing another Chapter 7 bankruptcy when you have passed the eight-year mark.
  • If you file Chapter 13 four years after filing Chapter 7, you can have a very low monthly Chapter 13 payment plan and receive a full discharge of all remaining balances after you complete the three- to five-year plan. For example, you could pay as little as $100 a month for three years inside a Chapter 13, paying very little to your creditors and yet still discharging the remaining balances owed.

As I said, you have an option, albeit a limited one. I assume you cannot afford the services of an attorney. You can file the case on your own and work through the large amount of paperwork that you will need to provide to the court. I truly hope you can do something immediately and resolve your stressful situation.

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

Read more Bankruptcy Adviser columns and more stories about debt management. To ask a question of the Bankruptcy Adviser go to the "Ask the Experts" page, and select "Bankruptcy" as the topic.

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